Executive Interviews: Interview with Robert Salomon on Staying on Top, Always
July 2009 - By Dr. Nagendra V Chowdary

Robert Salomon
Associate Professor at the Stern School of Business, New York University.

• Professor, your current research centers on the management and economics of international expansion. However, with the US financial crisis hitting the world economy hard, even the developed countries seem to be contemplating on going very slow on globalization. And in fact, there is a wide rhetoric about developed world (including most of the G-15 countries)embracing protectionist attitudes. Do you think such a move would indeed undo all the progress that has been made in the last decade?
  The benefits of globalization are many. Not only does globalization allow countries to specialize in the productive activities in which they have an advantage, but it also provides an important conduit for the exchange of ideas across countries. As my research points out, the exchange of ideas across countries is critical to innovation and growth.

  Therefore, I think it would not only be a mistake for countries to enact protectionist policies, but in the extreme, such policies could threaten the currently fragile economic recovery. Economies have become so intertwined that restricting the crossborder flow of goods and services (and capital) could lead to severe disruptions for developed and developing countries alike. For students of history, a refresher on the impact of the Smoot-Hawley Tariff Act (and protectionist policies adopted by other world economies) during the Great Depression might serve as a guide for the potential deleterious consequences of protectionism.

  That said however, I thinkwe are a far stretch from undoing all the progress brought about by globalization over the past decade. I would like to believe that most interested parties (politicians, lawyers, managers, etc.) recognize how important globalization is to economic growth and prosperity. But certainly, the emerging level of protectionist rhetoric bears some monitoring.

• What are the best practices that you have, over your distinguished research and teaching career, noticed regarding market entry strategies and international expansion strategies? Any interesting observations that you have noticed either from American companies, European companies or Asian companies?
  One of the things that I have noticed both in my research, and in my interactions with managers, is that managers often exaggerate the benefits and underestimate the difficulty of foreign expansion.Managers are quite good at identifying the demand-side benefits (the ability to tap into additional demand in the foreign market) and supply-side benefits (decreasing input and labor costs) associated with expansion, but systematically underestimate the additional costs imposed by operating businesses across differing institutional environments. Cultural, political, and economic environments vary greatly across countries. These differences manifest as real costs to firms, as research demonstrates that foreign entrants take a longer to set up operations in foreign countries, are forced to pay higher wages than local domestic competitors, run afoul of the law more frequently, and are generally less likely to succeed than similar domestic businesses.

  All of this makes it critical for companies to have a sound understanding of how the cultural, political, and economic differences that they face across countries are likely to affect their business. Firms should first see if their business (and business model) is appropriate to the environment, understanding that it might be better, in some cases, not to enter a country. However, once they’ve decided which countries are appropriate targets for entry, they should choose an entry mode appropriate to the environment. In my experience, I have found that those firms that perform best in this respect pay special attention to the cultural, political, and economic risk factors present in the host country.